FRIDAY 24 MAY 2002

Rt Hon Helen Clark
Prime Minister

Address to
AUCKLAND CHAMBER OF COMMERCE

POST BUDGET LUNCHEON

at

NZI Convention Hall
Aotea Centre
Auckland

1.00 pm
Friday 24 May 2002

Thank you once again for the opportunity to give this post-Budget address to the Chamber.

By now, almost 24 hours after the Budget's delivery, you will be broadly familiar with its contents and forecasts.

You will also be aware that the Budget brought no surprises. We know that business values certainty. It is also our view that in this age of open, global markets, governments should signal their intentions clearly and be as predictable as possible.

Before our government came to power, we were clear about our immediate intentions. Then from late 2000 at the first government and business forum here in Auckland, we signalled our willingness to work together with business on ways of taking the economy forward.

The need for economic transformation was the theme which dominated my Prime Minister's Statement to Parliament in 2001. That was followed by some intense work with private sector people and government on how to get a step change in economic growth.

At this post-Budget function last year I said that I was charging the Science and Innovation Advisory Council with developing an innovation strategy for New Zealand. Its draft document was released at the Knowledge Wave Conference, which was also a catalyst for wider debate in the community about the way ahead.

At the beginning of this year I released the government's growth and innovation framework which was informed by all the reports and dialogue which preceded it. It set out the steps already taken or being taken to build the base for a higher value economy, and signalled areas for further work and development. The Budget takes implementation of the framework a step closer.

In recent times the economy has been performing better than many of its peers and is set to continue to do so. The range of economic indicators are better balanced than they have been in a long time. Growth is forecast to average around three per cent and unemployment is expected to stay close to its thirteen year low reached last year. Forecast inflation stays within its band. The current account deficit, while predicted to rise to around five per cent in 2003/4, is expected to reduce again thereafter. Business and consumer confidence is relatively healthy.

The dramatic turnaround in the migration figures is further fueling growth and confidence in Auckland. The National Bank's Regional Trends figures out this week showed Auckland recording its seventh consecutive quarterly rise in economic activity. Auckland also registered the second highest level of business confidence recorded in the survey.

Economic growth and the government's firm fiscal policy have combined to produce credible operating surpluses in the government's accounts. This year's forecast operating surplus at $2.3 billion is 1.8 per cent of GDP. Gross debt is set to fall to 28.6 per cent of GDP in the coming year, down from 36.8 per cent when we took office. Net debt over the same time frame will have fallen from 22.4 per cent of GDP to 16.8 per cent.

As I have said on many occasions, a more complacent government might well have been tempted to bask in these favourable trends and do little. That isn't in our government's nature. From the outset we have recognised that the New Zealand economy has its vulnerabilities and needs to undergo substantial change if it is to achieve sustainable growth at higher levels. That is what the growth through innovation strategy sets out to achieve.

In line with the strategy, this Budget makes significant new investments in education and skills training, in science and research, in industry and business growth and development, and in promotion of exports and of New Zealand as a destination for new foreign direct investment.

Let me highlight just some of those initiatives:

„h Tertiary Education and Skills Training
$400 million of new money over four years is earmarked for tertiary education and skills training to drive the new Tertiary Education Strategy. The strategy links funding with quality and with relevance to the achievement of New Zealand's broader economic, social, and cultural goals.

In addition, big investments are being made in skills training for industry. We are doubling the size of the Modern Apprenticeship Programme to reach 6,000 places by December next year, at a total cost of $92.5 million per annum. This programme launched early in March 2000, is a flagship programme designed to open up more opportunities for young people to gain well-rounded trade and technical qualifications and to raise the profile and status of jobs needing those skills.

The general Industry Training Fund budget has increased dramatically too. We inherited a budget for it of $60 million. By next year it will have increased by more than fifty per cent to over $90 million.

These funding increases are boosting the numbers of industry trainees substantially. There were 81,000 in 2000, up about one third on the year before. Last year there were 95,000, and with the extra money being pumped in now those numbers are set to soar again, giving industry a better chance to hire the skills it needs.

Business New Zealand and The Council of Trade Unions have now approached the government seeking to work in partnership with us on advancing these skills strategies further.

„h Science and Research funding
Funding for science and research has increased by eighteen per cent since we took office. This Budget commits $100 million more over the next four years.

Half of this new increase goes to fund research partnerships with industry. The Technology for Business Growth Programme also increases, as does funding for basic research.

Last year the government made decisions on the future of genetic modification, based on the recommendations of the Royal Commission. The Budget provides $9.5 million over four years for the development of a New Zealand biotechnology strategy and for research into the environmental and social impacts of genetic modification. Another $8 million over four years will fund the new Bioethics Council and the development of necessary law changes.

Our government has been determined to pursue a responsible, precautionary path on genetic modification. What we will not do is turn our back on the 21st century in which science will be a major driver of progress.

„h Off shore Platforms for Exporters
Last year when I addressed this post-Budget luncheon, I spoke of an initiative which had impressed me during a recent visit to Korea. The Korean Government was supporting business incubators for its companies off shore to get them close to market and to ensure their international competitiveness.

In this Budget we have allocated $2 million per annum for just such an initiative by Trade New Zealand. We are calling it the "Beach Heads Initiative". It is all about assisting some of our new economy companies to establish marketing bases right amongst their customers.

Traditionally companies getting into export in New Zealand had a domestic base. Information technology has changed all that and now we have increasing numbers of small companies that are ¡§born global¡¨. Their products or services have little if any domestic market. Naturally these companies are predominantly in the high-tech sector.

In this sector speed to market is a paramount consideration. Six weeks is often the time cycle.
Although modern ICT enables close and frequent communication, there is no substitute for being face to face with your customers, especially when the market is crowded with competitors and you are a very small and unknown company from the bottom of the world.

Trade NZ has increasingly had requests from clients to assist them to establish their first beach head in the market. These are small companies which have normally spent most of their meagre capital on product development. They have fantastic intellectual property and product but little resource to take the next big step ¡V getting into the market.

This new initiative will give them a friendly first platform in some key markets. They will be able to move into a fully wired office, clustered with other similar New Zealand companies, and have the assistance of a local person with the contacts and networks to assist them to find the right partners.

Trade New Zealand is already establishing the first one of these beach heads in partnership with the Singapore Economic Development Board. Further possibilities are being investigated in the US and the UK, and Trade New Zealand is ready to move when the funding is available in the new financial year.

They have already canvassed their relevant clients and have built up a good picture of the needs of these companies.

Companies choosing to go into one of these beach heads will not have a free ride ¡V they will have to pay rent and they will have to contribute towards the costs of the staff member who assists them. But they will certainly get good value.

This initiative will bring more New Zealand companies into the market at a critical time for them, but in an environment that manages risk. The up front costs of establishing will be minimised because they will not need to sign up to long term leases of expensive real estate. They will get advice about appropriate in-market service providers ¡V legal firms, for example ¡V and they will be able to brainstorm with fellow New Zealanders, sharing mistakes and successes.

The Government considers this to be a very exciting initiative and an indicator of the growing involvement of NZ technology companies in the global economy. It is just one example of some of the targeted initiatives we are taking under our Growth and Innovation framework.

„h A new investment promotion agency
Creating an integrated investment promotion agency was a key recommendation from The Boston Consulting Group report to government.

Both Trade New Zealand and Industry New Zealand had investment attraction functions.

In this new initiative, the two are brought together into a single agency with a growing budget. The integrated agency begins in the new financial year with an additional $6.5 million, rising to an additional $8 million by 2004/05, over and above what was previously allocated to the two agencies.

For next year this will more than double the amount of money available for this function. The new agency will be targeting its efforts to recruit greenfields investment which can grow the economy. Foreign investment can bring new skills, new technologies, and new markets, and help build clusters of high value industries.

Earlier this year the government identified biotechnology, information and communications technologies, and creative industries as sectors with existing capability and great potential which could be enhanced by foreign investment.

The Budget allocates $8 million in 2002/03 to support government-industry partnerships in those sectors, rising to $10 million per annum by 2005/06. Taskforces in the sectors are already at work, identifying their opportunities and how to overcome barriers to growth.

„h Growth and Innovation Advisory Board
I announced in February that an advisory board drawn largely from the private sector would be established to advise the government on the progress being made, and on new initiatives which should be taken.

Today I am announcing the composition of that board. It will be chaired by Rick Christie who provided superb leadership to the former Science and Innovation Advisory Council. Its twelve members will include Theresa Gattung, the chief executive of our largest company, Telecom; Stephen Tindall, a tireless promoter of innovation; Jim Watson, one of our leading biotechnology entrepreneurs, Neville Jordan who made his name in telecommunications; and the vice-chancellors of our two leading research universities, Auckland and Otago, John Hood and Graeme Fogelberg.

The other members are Emily Loughman and Craig Soper representing high technology industries; Peter Biggs from the creative sector; Brian Easton, an independent economist; and Paul Goulter of the Council of Trade Unions.

I look forward to the Board providing the government with independent perspectives on how to advance the growth and innovation strategy.

In statements on the Budget yesterday, Michael Barnett correctly observed that the government was not pursuing "quick fix" solutions to growth.

What we are about is expanding the potential for sustainable growth over the long term. We appreciate that the sustainable growth rate has to be lifted from its present forecast three per cent to around four per cent to make faster headway on clawing our way up the OECD ladder.

Without an expansion of our capacity for growth, the Reserve Bank will feel bound to act to curb an anticipated inflationary impact beyond its target range when growth stretches beyond what it presently considers sustainable. That would almost certainly be its reaction to consumption-led growth fuelled by tax cuts.

It is up to government, business, unions, educators, and innovators working together to overcome the constraints on our capacity to grow sustainably. That is why the government is emphasizing growing that capacity by lifting skills levels, by boosting innovation, by encouraging more companies into exporting, and by more active and targeted attraction of foreign investment.

This government has set out a clear strategic framework for growth. Each Budget we have the privilege to present will build on that framework. We seek continuing dialogue with business on implementation of the framework ¡V through the Advisory Board, the sector task forces, through representative organizations, and through business forums which are continuing on a regional basis.

The reasons for our emphasis on growth and innovation are obvious.

A higher value and growing economy is needed to sustain and improve our quantity and quality of life.

If we want higher incomes and better services, we have to pay for them.

As a government we will invest as much as we can back into education and health. Within current constraints we deliver as much as we can, but if the country's prospects improve we can do more.

What drives us is the knowledge that New Zealanders have the talent to build a more prosperous and secure nation.

What we aim to provide in government is the leadership, the facilitation, the partnerships, and our share of the funding to make that happen.

Thank you for the opportunity to update you on our strategy and progress to date.

ENDS

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